The management of Natural Health Trends Corp. (NHTC) on Second Quarter 2022 Earnings – Earnings Call Transcript

Natural Health Trends Corp. (NASDAQ: NHTC) Q2 2022 Earnings Conference Call August 3, 2022 11:30 a.m. ET

Participating companies

Kim Orlando – ADDO Investor Relations

Chris Sharng – President and Director

Scott Davidson – Senior Vice President and Chief Financial Officer

Conference call participants


Greetings and welcome to the Natural Health Trends Corp. Second Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kim Orlando with ADDO Investor Relations. Thanks. You can start.

Kim Orlando

Thank you, and welcome to Natural Health Trends’ second quarter 2022 earnings conference call.

During today’s call, there may be statements regarding the future results of the company that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Results, performance or achievements actual results could differ materially from those anticipated in these forward-looking statements. – forward-looking statements through the outcome of certain factors, including those set forth in the company’s filings with the Securities and Exchange Commission.

It should also be noted that today’s call will be webcast live and can be viewed in the Investors section of the Company’s website at Instructions for accessing the archived version of the conference call are available in today’s earnings press release, which was issued at approximately 9:00 a.m. Eastern Time.

At this point, I’d like to hand over to Chris Sharng, President of Natural Health Trends.

Chris Sharng

Thank you, Michelle, and thank you all for joining us this morning to discuss our second quarter 2022 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer.

In the second quarter, we continued to experience significant COVID-related disruptions as lockdowns and social restrictions, as well as supply chain bottlenecks persisted in greater China. Despite these challenges, we generated revenue of $13.4 million, an increase of 16% over the first quarter of 2022. The increase over the prior quarter can be attributed to a well-attended virtual event that s is held at the end of June, as well as a promotional incentive. to which our members responded strongly.

We recorded net sales of $16.2 million in the second quarter of 2021. The year-over-year comparison was particularly difficult given that a year ago, our first major in-person event since the first coronavirus outbreak was held in Macau and we were able to organize several other activities in person.

It is admittedly difficult to replicate the excitement and energy that comes from live events online. We appreciate and acknowledge that our teams have continued to work hard and adapt to ever-changing regulations and social restrictions. Working with our leaders, we implemented a new virtual training system that integrates company-sponsored product training and member-led business, motivation and leadership training to better support the continued development and engagement of our members.

In terms of our markets outside of China and Hong Kong, we managed to return to growth in our European market fueled by our activity in Sweden. In April, we held a successful product training event with over 150 attendees. Additionally, in-person and virtual activities combined with locally designed stand-alone initiatives remained key elements of our strategy to support markets in North America, India, Peru, Mexico, Japan and the IEC. These activities included leadership development trainings, product education sessions and incentive trips.

In May, we celebrated Peru’s fifth anniversary by joining over 250 members in a virtual session to commemorate the milestone. Despite the general global economic downturn affecting many of our markets, we remain committed to our business fundamentals and future growth through new local promotional initiatives, ongoing development and training of leaders, technological advancements to improve user experience and provide information. to improve business management and market expansion.

In summary, we are pleased with the second quarter’s financial performance to achieve sequential top line growth and ensure bottom line profitability through our continued efforts to manage costs in alignment with sales.

With that, I’d like to turn the call over to our Chief Financial Officer, Scott Davidson, to discuss our financial results in more detail. Scott?

Scott Davidson

Thanks Chris. Total revenue for the second quarter was $13.4 million, an increase of 16% from $11.5 million in the first quarter of 2022 and a decrease of 17% from $16.2 million in the second quarter of 2021. The spread of COVID-19 bans in greater China, as well as strong government control measures, momentarily impacted our results in the first half of 2022.

As Chris mentioned, the sequential increase in revenue during the quarter was primarily due to a special virtual event and incentive held in June designed to encourage new member engagement. The year-over-year revenue decline was challenging due to a busy schedule of intensive in-person event sales and training activities across Greater China in the second quarter of 2021.

As we continue to navigate this pandemic, we expect our financial results to continue to be negatively impacted as the operating environment remains fragile. Many restrictions remain in place and the potential for more disruptive measures is still unpredictable. Our active membership base decreased by 3% to 43,020 as of June 30efrom 44,490 as of March 31 and down 8% from 46,860 as of June 30 last year.

With respect to our operating costs and expenses. Gross profit margin of 74.6% decreased from 75.7% in the second quarter last year due to the impact of relatively fixed costs on a lower level of net sales, as well as a decrease revenue from administrative costs. Commission expense as a percentage of total revenue for the second quarter increased to 43.2% from 42.9% in the prior quarter.

Selling, general and administrative expenses for the quarter were $4 million, compared to $4.9 million a year ago. The decrease in our general and administrative expenses compared to the prior year quarter reflects lower event costs, as we hosted a major event in June 2021, as well as lower professional fees and credit card fees . Accordingly, operating profit for the quarter amounted to $215,000 compared to $385,000 in the second quarter of the previous year. We recorded an income tax expense of $207,000 for the quarter compared to $97,000 in the second quarter last year. Net income for the second quarter totaled $183,000 or $0.02 per diluted share, compared to $229,000 or $0.02 per diluted share in the second quarter of 2021.

I will now turn to our balance sheet and our cash position. Total cash and cash equivalents was $75.6 million as of June 30, down from $79.4 million as of March 31. Net cash used in operating activities was $1.2 million in the second quarter, compared to net cash provided by operating activities of $134,000 in the second quarter last year.

As returning capital to our shareholders remains a top priority, I am pleased to announce that on August 1, the Board of Directors declared another quarterly cash dividend of $0.20 per share, which will be payable on August 26 August to shareholders of record as of August 16. We continue to refine and perfect our efforts as we navigate this complex operating environment. While this quarter represents a positive trend in revenue improvement, we look forward to continuing to revitalize growth and improve our financial performance in 2022 and beyond.

This completes our prepared remarks. I will now return the call to the operator.


Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You can disconnect your lines at this time and have a wonderful day.

Q&A session


Maria J. Book